Retail Bulletin

The consumer price index (CPI) for jewelry in the U.S. rose 7.5 percent year on year during the month of December 2008 to 156.07 points, according to statistics provided by the Bureau of Labor Statistics (BLS). The rate — based on the reference point of average prices in 1986, which is set at 100 points — was over one point higher than November’s reading. The average monthly index for the year 2008 rose 7.9 percent over 2007 to 153.77 points.

For the watch and jewelry categories combined, the December index was up by 6.9 percent to 148.86 points and the monthly average for the calendar year was up 6.9 percent to 146.52 points. The CPI across all products for the year rose 3.8 percent to 215.3 points.

ICSC Calls 2008 Holiday Season the Weakest in 40 Years

The International Council of Shopping Centers (ICSC) billed the 2008 holiday season the weakest in nearly 40 years. ICSC said it expects December’s comparable store sales to drop by at least 1 percent “with only a few bright spots amid double-digit declines among a broad swath of the industry.” In their weekly summary of chain-store sales, ICSC and Goldman Sachs reported that sales fell 1.8 percent in the week ended December 27, 2008, compared with the previous year.

Holiday Sales of Luxury Items Down 34 Percent

Luxury items — jewelry in particular — sold poorly in November and December 2008 during what financial researcher SpendingPulse called “one of the most challenging holiday shopping seasons in decades.” SpendingPulse, a division of MasterCard, reported in its 2008 “Holiday Wrap-Up Report” that luxury sales were down more than 34 percent compared with the November 1 through December 24 period of 2007, representing the largest year-over-year decline of all the categories it tracks. When jewelry is excluded, luxury sales declined by slightly over 21 percent.

December Department Stores Sales Fall

Department store sales fell 7.2 percent in December to $16.1 billion, according to U.S. Department of Commerce (DOC) estimates. In November and December combined, department store sales declined an estimated 6.2 percent to $32.6 billion. For the year, department store sales clocked in at $200 billion, down 4.5 percent from 2007.

RBC: Diamond Market Will Worsen

Des Kilalea, a Royal Bank of Canada (RBC) Capital Markets analyst, offered a bleak outlook for the diamond industry, saying that the market is likely to worsen before it gets better. “[T]he chill of global recession is going to become increasingly evident in the form of accelerating job losses,” Kilalea wrote in a note to investors.

Kilalea does not expect any material improvement in market conditions until at least the second half of 2009. He explained that in cutting back production, producers are laying the foundation for a strong recovery in diamond prices, but prices will remain depressed until jewelry demand bottoms out and liquidity improves. In the short term, Kilalea said, high debt levels at cutting centers are likely to persist. This is likely to result in some bankruptcies among cutters, particularly in India, he added.

Richemont’s Third-Quarter Sales Decline

Luxury retailer Richemont reported a 7 percent drop in its group sales during the three months ended December 31, 2008 and offered a bleak outlook for future performance. “Richemont is currently facing the toughest market conditions since its formation 20 years ago,” the Geneva-based company explained in its third-fiscal-quarter sales report. 

Richemont registered declines in each of its main product categories as total sales fell to $2.1 billion (EUR 1.6 billion) for the period. Jewelry sales fell 7 percent to $1.1 billion (EUR 800 million). Richemont’s Cartier brand reflected lower sales than last year, while its Van Cleef & Arpels brand experienced marginally lower sales. Sales were weakest in the Americas, where Richemont reported a 24 percent decline in sales for the period.

JCPenney Calls Concerns About Credit Facility “Unfounded”

Retailer JCPenney released a statement to dispel “unfounded concerns” regarding its revolving credit facility. A spokesperson for the company said, “JCPenney has one of the strongest balance sheets in the retail industry and a cash position that is more than sufficient for all of our needs. Given this, there is no basis for any concern about our credit facility.” At press time, JCPenney expected to have more than $2 billion cash on its balance sheet at the close of its fiscal 2008, which ended January 31, 2009.

The company paid a $200 million debt maturity from its cash balances in August 2008 and has no debts that will mature during 2009. JCPenney’s next debt maturity will total approximately $500 million and occur in March 2010. The retailer expects to fund this maturity from its cash balances.

Birks & Mayors’ Sales Tank

Jewelry retailer Birks & Mayors reported that its sales fell 31 percent to $66 million for the November 2 to December 27, 2008 period and its same-store sales dropped 26 percent. In the U.S., same-store sales decreased by 31 percent, while they declined 19 percent in stores across Canada.

Birks & Mayors concluded that sales fell due to low consumer confidence and a decrease in discretionary spending, which led to a significant reduction in store traffic and average transaction value. “In addition, $7.7 million of the decrease in net sales is related to translating the sales of the company’s Canadian operations into U.S. dollars with a relatively weaker Canadian dollar,” the retailer maintained in its statement. One year ago, Canada’s dollar was just about even with the dollar, but during November and December 2008, $1 bought between CAD 1.16 and CAD 1.29.

TD Retail Card Services, a New Jersey-based unit of Toronto-Dominion Bank, purchased the right to operate a private-label credit card portfolio for Birks & Mayors. TD Retail will direct Birks & Mayors’ private-label card operations at 37 of its locations in Canada. The companies did not disclose the price of the deal.

— Additional reporting by Source Media, Inc.

Jewelry Sales in Canada Stable

Jewelry retailers in Canada were among the least volatile retail performers in December 2008, experiencing a sales decrease of just 1 percent from December 2007, according to payment-processing company Moneris Solutions. Total retail sales in the country grew 2 percent in December from one year ago. For the second and third weeks of December, Moneris reported a 21 percent increase in credit and debit card spending at jewelry retailers.

Article from the Rapaport Magazine - February 2009. To subscribe click here.